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is doubtful whether it applies to land transportation
at all. But constitutions are living instruments.
Their words are changeless, but the meaning is not
always the same. The Commerce Clause, itself,
was framed with especial view to intercourse by
water. It has been adapted through judicial inter-
pretation to fit modern conditions. So it is not safe
to say that the provision against port preferences,
which has yet received little judicial attention, would
not be given a much broader meaning than the
framers of the Constitution had in mind.

We may assume that if Congress should pass an
act fixing rates, and directly conferring an advantage
upon the ports of one State over those of another,
it would be unconstitutional. But if the advantage
only resulted indirectly from the operation of the

1 Constitution of United States, Art. I, sec. 9, par. 6.



228 AMERICAN RAILROAD RATES

act, it seems that It would not be unconstitutional.
A direct preference of the ports of one state over
those of another Is prohibited ; an Indirect or inci-
dental advantage is not Invalid. In the Wheeling
Bridge Case ^ — one of the few cases where this
provision has been considered — the Supreme Court
said : " It will not do to say that the exercise of an
admitted power of Congress conferred by the Con-
stitution is to be withheld if it appears, or can be
shown, that the effect and operation of the law may
incidentally extend beyond the limitation of the
power. Upon any such Interpretation the princi-
pal object of the framers of the Instrument In
conferring the power would be sacrificed to the
subordinate consequences resulting from its exer-
/ else. The consequences and incidents are very
proper considerations to be urged upon Congress
for the purpose of dissuading that body from its
exercise, but afford no ground for denying the
'V^, power itself, or the right to exercise It."

An act conferring upon a commission power to
make reasonable rates would not conflict with the
provision against port preferences. The contin-
gency that the commission, In making a rate, might
unduly prefer the ports of one State would not
affect the validity of the act conferring the power.
The commission would act subject to all constitu-
tional limitations. If It exceeded Its powers and
unlawfully preferred one port over another, its act

1 i8 Howard's Rep. 421, per Nelson J.



FEDERAL REGULATION OF RATES 229

— the rate made by it — would be invalid, but
the law would be unaffected. That a commis-
sion in violating its duty may infringe a constitu-
tional provision does not make the act creating it
unconstitutional.

The question of constitutionality relates rather to
the act of the commission than to the act of Con-
gress. It is, therefore, necessary to go one step
further and consider what rates made by a commis-
sion would constitute a preference between ports.
A preference, within the meaning of the constitu-
tional provision, seems clearly to mean an undue
advantage. The commission would have the right
to consider the conditions of the railroads and the
traffic going to different ports. The requirement
of a uniform charge per ton per mile to different
ports instead of treating the ports with equality
might give the very preference prohibited by the
Constitution. Levelling rates without regard to
conditions would create uniformity without equality.

But what would be the result should a commis-
sion, with rate-making power, attempt to adjust
differentials between different ports ? An arbitrary
differential would undoubtedly infringe the con-
stitutional provision against port preferences — as-
suming that it applies to land transportation. A
differential based upon differences in conditions, on
the other hand, would not seem to be an unlawful
preference. But these and similar questions relate
rather to the working of a law giving a commission



230 AMERICAN RAILROAD RATES

power to make rates, than to the constitutionality of
the law itself.

The Interstate Commerce Act contains the only
regulation of railroad rates ever adopted by Con-
„ . . gress. The Act provides that all charges

Existing ^ . '^ . o

federal for transportation services shall be "reason-
legislation. 1 , 1 • >> 1 IT

able and just, and creates the Interstate
Commerce Commission to enforce its provisions.

The Commission never attempted to prescribe
rates in the first instance. Acting, however, upon
the theory that power to pass upon the reasonable-
ness of a rate implies power to name one to take
its place if found unreasonable, it exercised the
latter power for several years after its creation.
While this practice was not unquestioned, it went
on and increased until 1896 when the Supreme
Court in the Social Circle case^ doubted its va-
lidity, and the next year in the Maximum Rate
case" held "that the power to prescribe rates or
fix any tariflF is not among the powers granted to
the Commission" — that under no conditions had
the Commission authority to fix maximum, mini-
mum or absolute rates for the future.

It cannot be said that this decision took away
the rate-making power from the Commission. It
never had the power to take away. It did, how-

1 Cincinnati etc. R. Co. i;. Interstate Commerce Commission, 162
U. S. Rep. 184.

2 Interstate Commerce Commission nj. Cincinnati etc. R. Co., 167
U. S. Rep. 479.



FEDERAL REGULATION OF RATES 231

ever, demonstrate the absolute inability of the Com-
mission to deal with unreasonable charges. The
Commission may find a rate excessive, and order
the railroad to desist from charging it. The rail-
road may comply with the order and reduce the
rate just as much or just as little as it sees fit.
On the other hand, it may ignore the order, contest
the matter over again in the courts, and in the
end — if unsuccessful — act in a similar manner.
In this way, after years of litigation, an excessive
charge may be reduced a trifle. The extent of any
reduction depends entirely upon the views of ex-
pediency held by the railroad officials. Any sub-
stantial reduction would be wholly voluntary.

The Interstate Commerce Act authorizes persons
who have sustained damages by excessive charges to
make complaint to the Commission or to institute
suit for their recovery in a federal court. If in
these proceedings it be finally determined that the
rate complained of is unreasonable, the party in-
jured may recover the difference between what he
actually paid and what he ought to have paid. But
he could have obtained precisely the same relief
without any statute. Actions for the recovery of
damages from common carriers who have made
unreasonable charges have always been maintainable
at common law.

Finally, the Interstate Commerce Act provides
that the findings of the Commission shall be prima
facie evidence, in all judicial proceedings, of the facts



232 AMERICAN RAILROAD RATES

found. And this is the only real power of the
Commission over excessive charges — it may make
a finding which will have the effect of shifting the
burden of proof.

The Interstate Commerce Act is wholly ineffectual

in dealing with unreasonable rates. It leaves the

. , situation practically as it was at common

Statuswith- S , -^

outeffective law. It IS, therefore, desirable to consider
federaiieg- •^hat are the common-law remedies of

islation. , . . 111

shippers against unreasonable charges and
where they leave the shippers when they are enforced.
Under the common law, a shipper, claiming to be
aggrieved by an unreasonable charge, may maintain
an action to recover back from the carrier the amount
paid in excess of a reasonable rate. He cannot
obtain his goods without paying the charge. But
an action to compel restitution affords no real remedy.
The small shipper will generally lose more than he
will gain by such a proceeding, even if he win his
case. The large shipper will hesitate long before
he enters into a controversy with the railroad in
the complex matter of charges — a controversy
which, regardless of result, must be expensive, and
is likely to be long drawn out. And such an action
settles little. The shipper who wins recovers back
the comparatively small sum paid by him in excess
of a reasonable charge, but nothing is accomplished
for the future — and nothing is accomplished with
respect to the past except in the case of that par-
ticular shipper. It is not surprising, therefore, that



FEDERAL REGULATION OF RATES 233

actions by shippers to recover amounts paid to
carriers in excess of reasonable charges have been
few and far between. As said by the Supreme
Court of the United States : " Any individual
shipper would in most cases be apt to abandon the
effort to show the unreasonable character of a charge
sooner than hazard the great expense in time and
money necessary to prove the fact, and at the same
time incur the ill-will of the road itself in all his
future dealings with it." ^

Existing remedies for unreasonable charges fail
in two respects :

(i) They are ineffectual as far as they go.

(2) They do not go far enough.

As we have seen, the attempt by an individual
shipper to secure the restitution of moneys paid for
unreasonable charges is so hedged about with costs
and difficulties that few will make it. The small
number who bring suit may recover a few dollars at
an expense exceeding the amount recovered ; the
vast majority who refrain from proceeding may in
the aggregate be damaged to the extent of thousands
of dollars by an excessive charge. A multiplicity of
suits will be necessary for all to obtain relief. The
relief when obtained will cost more than it is worth.
If it be expedient that any further remedy should
be provided, it should proceed along the line of
adjudicating the reasonableness of a charge before
and not after it is paid.

^ Trans-Missouri Freight Ass'n Case, i66 U. S. Rep. 332.



234 AMERICAN RAILROAD RATES

Any effective relief for the shipper involves, in
the first place, the determination by a competent
tribunal, with little expense and delay, of the reason-
ableness of a rate complained of. But determining
the reasonableness of an existing charge without
prescribing the rate to supersede it, if found un-
reasonable, stops at the vital point. The adjudica-
tion that rates in the past have been unreasonable
does little good if the same rates are to prevail in
the future. If additional legislation be expedient
at all, it must look to the future as well as the past.
And whether it be expedient or not, one thing is
certain : Existing remedies afford the shipper in-
adequate relief from unreasonable charges.

Having found that existing remedies are no

remedies, we approach the question whether it is

expedient that Congress should afford a

Expediency ^ "

of additional real remedy.

federal legis- TIiq first phase of the question is

lation. ^ . . , \ , . .

whether — assuming that legislation is
required — federal 2.ct\on is necessary. This is soon
disposed of. The great bulk of the traffic in the
United States is interstate traffic. Congress alone
can deal with charges upon it. Each State might
adopt the most effectual laws, and the situation be
little changed. Adequate relief necessitates federal
action. It can come from no other source.

The second phase of the question relates to the
remedy proposed. Whether it be expedient to enact
additional federal legislation depends upon the nature



FEDERAL REGULATION OF RATES 235

of the legislation. We have seen that, at present,
the shipper is practically remediless in the case of
unreasonable charges. But an effective remedy may
be inexpedient if radical ; may be expedient, if con-
servative. If it reach the wrong complained of and
stop, it may be entirely proper; if it go further,
it may in the end do more harm than good. A
radical measure of relief for unjust charges would
be to take the rate-making power entirely out of the
hands of the railroads. Particular cases of injustice
might be remedied. But, as we have seen,^ govern-
mental making of initial charges would be wholly
impracticable ; would deprive rates of that adapta-
bility to conditions essential to the development of
traffic, and would tend to level them up instead
of down. The remedy would be worse than the
disease ; not only for the railroads, but, in the long
run, for the shippers. Initial tariffs must be made
by the railroads. No other course is seriously
proposed. Affording a remedy when charges are
found unreasonable alone is practicable.

Conservative action by Congress which goes no
further than to deal with definite evils, and anything
less than which would leave the situation practically
unchanged, is to provide a method for

(i) Determining by public tribunal the reason-
ableness of rates complained of;

(2) Making by public authority rates to take
the place of those found unreasonable.

1 See page 60.



236 AMERICAN RAILROAD RATES

The precise form the action should take we will
consider later. Let us now look at the expediency
of taking the action indicated in any form. And at
the outset let us go back to the first principles of
rate making. Whether rates should be regulated
may depend upon how rates are made.

Now if any one thing is established as a result of
our examination, it is that charging according to the
value of the service is the only feasible method
of making rates. It is both impracticable and
undesirable to base them upon cost of service.
Equal mileage rates are out of the question. The
only way is to base charges upon ability to pay.
But in measuring ability and differences in ability
there is no definite rule to go by. The limits
within which the rates may be placed are wide
apart. Estimate and comparison are required.
The method is so flexible and elastic that there
is much room for honest differences of opinion
between shippers and railroad officials as to the
precise point where the rate should be fixed. If
it were possible to base rates upon cost, it might
well be urged that the railroad officials had the
superior knowledge. But in judging ability to
pay — making what is necessarily more or less of
a hap-hazard estimate — the difference in knowledge
is not so apparent. In case of controversy, it is
hardly fair that one of the interested parties should
have the sole power of decision.

Charging according to the value of the service



FEDERAL REGULATION OF RATES 237

puts into the hands of the railroad officials a power
fundamentally like that of taxation. The foundation
of both is ability to pay. And while rates are not
really taxes, and while the value principle is legit-
imate and the only practicable basis of rates, its
application, unrestricted, may lead to arbitrary dif-
ferences and unreasonable charges. There may be
opportunity for injustice in the operation of a just
principle. The very nature of the practice followed
in making rates for public services shows the neces-
sity for some measure of public supervision.

We have seen that competition neither benefits
the railroads nor the public ; that pooling should be
encouraged and not prohibited, and that the dangers
of consolidation lie rather in the concentration of
power for collateral purposes, than in the elimination
of competition. But this is all upon the theory
that the railroad, although a monopoly, is subject
to governmental regulation in respect of its charges.
If possible arbitrary power be restrained and con-
trolled there is no objection to a monopoly. If, on
the other hand, the power be entirely unrestrained,
it cannot be denied that there are grave possibilities
of danger. It is generally conceded that the con-
trol of the greater part of the railroad mileage of the
United States is held by a small group of financiers.
But this, standing alone, does no harm from the
rate standpoint. Even if all the railroads in the
country were combined into one system, the public
could not complain if efficient services were rendered



238 AMERICAN RAILROAD RATES

at reasonable rates. All the more necessary, how-
ever, would be efficient measures of relief if rates
were not reasonable. And all the more does the
tendency toward consolidation indicate the necessity
for such measures.

Thus far our examination shows clearly the
necessity and expediency, not of taking from the
railroads the power to make rates in the first in-
stance, but of providing effective means for dealing
with particular unjust charges when they are found
to exist. This is not going far; and it seems
necessary to go so far if the shipper is to feel that
he has a fair chance to assert his rights. The feel-
ing of impotency upon the part of the shipper is
a real evil. It is not vitally important whether in
fact unjust charges be many or few. It is important
that the shipper should have an opportunity of
presenting the justice of the charge complained of,
in an expeditious way, to a disinterested tribunal.
The existence of a remedy might do more to allay
popular apprehension than any possible resort to it.

Now taking up the objections. It is said that
however ineffectual the remedies of the shipper may
be, it does not follow that the proposed legislation
is called for. It is pointed out that rates in the
United States have shown a steady decrease for
a long period of years, and that although the de-
crease has been arrested in the last few years, average
rates are still below those existing in any other
country. And it is said with truth that there is no



FEDERAL REGULATION OF RATES 239

cause for alarm in the general average of rates. But
this objection, in the first place, does not quite hit
the mark. Legislation may be expedient — as we
have just seen — if unreasonable charges be few.
In the second place, a reasonable average does not
disprove the existence of unreasonable charges in
particular instances. Some rates may be very high
and some very low and yet the average be entirely
reasonable. Making rates is a complex problem.
Railroad officials are not infallible. Errors of
necessity must exist. Unjust charges must creep in
notwithstanding the greatest care and best judgment
of the most competent traffic managers.^ Railroad
officials will correct many errors themselves. But
if they refuse to take action, and deny that errors
exist, something is lacking if their refusal end the
matter.

Another general objection to any governmental
interference with rates is that they are governed by
natural laws and are determined by business condi-
tions. This is true in a way. Competition is a
natural regulator of prices. But railroad competi-
tion only exists in particular places, and is growing
less and less in those places as consolidations go on.
Competition of markets sometimes brings down the
general level of rates. Natural laws do affect the
average rate, but they have little effect upon a par-

^ The testimony of witnesses before Congressional committees in
recent years has disclosed many instances of apparently unreasonable
rates, as distinguished from discriminating charges.



240 AMERICAN RAILROAD RATES

ticular charge. When it Is claimed that a given
charge is unreasonable it is of little use to say that
according to natural conditions it ought not to be.
Excessive charges generally take care of themselves.
It is the exceptional case where they do not which
we are looking after. If the railroad's business were
private the remedy in this exceptional case would
be found, if found at all, in economic principles.
But its services are not private ; and for that very
reason economic principles cannot be wholly relied
upon.

But while the impotency of the shipper under
existing conditions is apparent, and while general
objections to the limited governmental interference
we are considering may be brushed aside, there is
one objection which is entitled to careful considera-
tion. It is obvious that power to make any rate
in place of one found unreasonable is power to
make all rates if all are found unreasonable. And
this means something more than that the power is
necessarily so broad that it is possible to exercise it
in a revolutionary way. That possibility might well
be passed over if action were confined to cases where
existing charges after complaint and hearing had
been found unreasonable. But rates are interde-
pendent. They are so adjusted that any alteration
in one affects others. A change in a single rate
may compel the modification of an entire schedule.
The far-reaching effect of any exercise of the rate-
making power affords the strongest argument against



FEDERAL REGULATION OF RATES 241

its grant to any commission. And yet it cannot
wliolly overrule the necessity for some remedial
legislation. The conclusion must be that some
measures of relief are necessary, but that they must
be of the most conservative character.

Another objection to any measure involving the
making of rates by public authority is its impracti-
cability. It is said that it cannot be shown that
rates are unreasonable, because there is no standard
of reasonableness. And it cannot be denied that it
is impracticable, except under extraordinary circum-
stances, to show that a rate is unreasonable per se.
But as we have seen,^ it is legitimate to make
comparisons with other charges ; and it is by com-
parison that rates are, in fact, made. But even with
comparison the difficulty of showing that a rate is
unreasonable is obvious. The difficulties, however,
are not insurmountable ; and the fact that a shipper
will encounter them constitutes no real reason why
he should be denied the privilege of making the
attempt.

Other objections are made to specific measures.
Thus it is said that it is unwise, as well as uncon-
stitutional, to clothe the Interstate Commerce Com-
mission with judicial as well as legislative powers
— that it should not act as prosecutor as well as
judge. It is also urged that the general rate-making
power in the hands of any political board — readily
susceptible to popular clamor — could not fail in

1 See page 6 1 .
i6



242 AMERICAN RAILROAD RATES

the end to operate disastrously to the railroads.
But as these objections are inapplicable to the
measures we shall propose, it is unnecessary to
consider them.

Going back then to the measures indicated as nec-
essary, we reach the conclusion that it is expedient
that Congress should adopt additional legislation
providing a method for

(i) Determining by public tribunal the reason-
ableness of rates complained of.

(2) Making by public authority rates to take the
place of those found unreasonable.

And now the question arises as to the particular
form the legislation should take.

Rate regulation generally proposed involves
Forms ad- three progressive steps :
ditionai /j\ 'j^j^g adjudication by the Interstate

legislation ^ ^ -> _ .'

cannot take. Commerce Commission, after due hear-
ing, of the reasonableness of a rate complained of.

(2) If a rate be found unreasonable, the pre-
scribing by the Commission of a rate to take its
place.

(3) The review of the action of the Commission
by the courts.

The Esch-Townsend bill passed by the last House
of Representatives (1905) may be taken as fairly
typical of the proposed measures, and as in accord
with the recommendations of the Interstate Com-
merce Commission and with the crystallization of
public sentiment. The bill provides that " when-



FEDERAL REGULATION OF RATES 243

ever upon complaint duly made . . . the Inter-
state Commerce Commission shall, after full hearing,
make any finding or ruling declaring any existing
rate . . . unreasonable or unjustly discriminating,
the Commission shall have power, and it shall be its
duty to declare and order what shall be a just and
reasonable rate ... to be charged ... in the
future in place of that found to be unreasonable
. . . but at any time . . . any person or persons
directly affected by the order of the Commission,
and deeming it to be contrary to law, may in-
stitute proceedings in the court of transportation
sitting as a court of equity, to have it reviewed and
its lawfulness, justice, or reasonableness inquired
into and determined."

Before considering the wisdom of adopting this
measure let us test it by the standard of constitu-
tionality. If it be unconstitutional it is unnecessary
to examine it further. And that it is unconstitu-
tional appears evident. This bill and other pro-
posed measures along similar lines seem to be
invalid for two reasons :

(i) They require the exercise of judicial func-


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Online LibraryWalter Chadwick NoyesAmerican railroad rates → online text (page 15 of 17)